ICICI Bank Q4 net soars 189% even as loan quality worsens

The country’s largest private sector lender, ICICI Bank, on Wednesday reported a 189 per cent year-on-year rise in its March quarter (Q4) standalone net profit, even as loan quality worsened.

Net profit for the quarter was at Rs 2,024.64 crore, against Rs 701.89 crore in the year-ago period, but lower than Bloomberg consensus estimate of Rs 2,143 crore. Gross bad loans as a percentage of advances were at 7.89 per cent, against 5.21 per cent in the year-ago period. In the third quarter ended December 2016, the bank’s gross non-performing asset (GNPA) ratio was 7.20 per cent.

Gross NPA ratio of 7.89 per cent is higher than that of Axis Bank, which had the figure at 5.04 per cent in Q4.

In the quarter, ICICI Bank classified Rs 5,378 crore as NPA towards a cement company. While the bank did not name the company, analysts say it is JP Associates, which was already classified as NPA in the third quarter by some public sector banks. Apart from this particular NPA, the bank had an addition of another Rs 5,911 crore of bad debt in the quarter.

Therefore, the overall slippage (loans that turned bad or defaulted) in the quarter was at Rs 11,289 crore, compared with Rs 7,037 crore in the third quarter. Suresh Ganapathy, analyst with of Macquarie Capital was concerned about the high slippages in the bank.

“This is not a good sign yet for the bank,” he said.

However, ICICI Bank’s managing director and CEO Chanda Kochhar assured that the bad loans situation was under control.

“Additions to NPA in FY18 should be lower than FY17. We expect upgrades from NPA to happen and slippages should also be significantly lower. We are seeing good interest collection from NPAs at the moment,” Kochhar said.

The bank wrote off Rs 5,386 crore of NPAs in the fourth quarter, compared with Rs 788 crore in the third quarter. Recovery and upgradation of loans in the fourth quarter was at Rs 1,400 crore. In the quarter, the bank sold Rs 3,286 crore of its bad debt to asset reconstruction companies. In the third quarter, it had sold Rs 2,811 crore of assets to ARCs.

At a call with reporters to discuss the bank’s results, Kochhar did not want to disclose the nature of the write-off, but said it was a mix of assets, consistent with the bank’s write-off policy. Write off in the year ago quarter was at only Rs 148 crore. The bank used up Rs 1,528 crore, the remaining part of its contingency reserve of Rs 3,600 crore created last year, towards providing for bad loans.

Total provision towards bad loans (other than for tax and contingencies) was at Rs 2,898.22 crore against Rs 3,326.21 crore in the year ago period and Rs 2712.70 crore in the third quarter.

As a result, the provision coverage ratio of the bank fell to 53.6 per cent from 61 per cent last year even as capital adequacy ratio rose 17.39 per cent from 16.64 per cent in the year ago period.

Post provision, recovery and write off, net NPA ratio was at 4.89 per cent of total loans, from 2.67 per cent in the year ago quarter and 3.96 per cent in the December 2016 quarter.

The results were declared after market hours by which time the bank’s stocks had closed 1.1 per cent lower at Rs 272 per share on Bombay Stock Exchange (BSE). While the numbers, especially the asset quality, don’t look good analysts say that future commentary on formation of NPAs and slippages are positive.

The bank’s board recommended pre-bonus dividend of Rs 2.5 per share for 2016-17 and one bonus share for every Rs 10 paid-up share held.

The net interest income (NII) for the reporting quarter rose by 10.32 per cent to Rs 5,962 crore from Rs 5,404 crore in Q4 of 2015-16. Net interest margin of the bank was at 3.57 per cent for the fourth quarter, compared with 3.37 per cent in the year ago quarter.

Share of low-cost current and savings account (CASA) in the total deposit was a healthy 50.4 per cent at the end of March, the highest level in at least last four years. Proportion of retail loans to the overall loan book grew to 51.8 per cent, the highest ever.

Kochhar guided that the bank will continue to grow its credit book at 15-16 per cent, while the retail segment will see growth of 18-20 per cent.

The other income comprising fees, commissions and revenues from treasury stood at Rs 3,017 crore in Q4 FY17, down from Rs 5,108 crore in Q4 FY16.